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I’ve come across a question in the Kaplan SBR study text which I just can’t figure out, even though it appears to be quite simple. It goes like this:
In the year ended 31.12.20X1, HCRM recorded a profit before tax of $300 million. Its tax rate is 20%.
In accordance with IAS 13 Income Taxes, it has disclosed the following information in its published financial statements.
PBT $300.0
PBT multiplied by 20% tax rate $60.0
Adjustments to current tax in respect of prior years $8.2
Depreciation on assets not qualifying for tax relief ($1.5)
Sundry disallowables ($0.7)Total tax charge $66.0
Effective tax rate (%) 22My question is this: surely the depreciation on assets not qualifying for tax relief should be a positive figure? If it’s disallowable depreciation, then surely the taxable PBT increases. Should it not also be the same for the sundry disallowables?
Thanks for any help, this small question is driving me mad.
I think you are correct. Tax charge would increase. There is a past exam Q (Hollis) which agrees with both of us!
PS. It’s IAS 12 but don’t worry about standard numbers in the exam.
Fantastic, thanks! This one was annoying me so much. I guess I made a bit of a typo with the IAS 13 comment above, clearly should be IAS 12 as you say.
Thanks again!
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